@hotmiPublicDisclosureAuthorizedPublicDisclosureAuthorizedPublicDisclosureAuthorizedPublicDisclosureAuthorized©2010TheInternationalBankforReconstructionandDevelopment/TheWorldBank1818HStreet,NWWashingtonDC20433USATel.+(202)473-1000Internet::MarkDeFraeye,CourtesyoftheWellcomeTrust,LondonUK.ChinaHealthPolicyNotesChinaHealthPolicyNotesisaseriesofoccasionalpapersonlessonsandexperiencesfromChina’songoinghealthcarereform.TheseriesispublishedbytheWorldBankincollaborationwiththeGovernmentofChina.Thepaperstrackandanalyzethereformprocess,andevaluateearlyresults.Eachpaperfocusesonakeychallengethatiscentraltosuccess.Thepapersarewrittenfromapragmaticperspective—namely,howthereformscanberefinedandimprovedastheprocessunfoldsoverthecoming5to10years.Experienceisreportedinthecontextofinternationalbestpractice.ResearchwascarriedoutundertheWorldBank’sAnalyticandAdvisoryAssistanceprogram,aparticularlyfruitfulcollaborationbetweentheBankandtheGovernmentthathasbeenunderwaysince2003.Initialtechnicalpaperswerepreparedbyteamsofnationalandinternationalexperts.PreliminaryversionswerecriticallydiscussedwithChinesepolicymakersandtechnicalcounterparts,especiallywithintheministriesthatinitiallyrequestedthisassistanceinmid-2008.Allpaperswerethensubjecttorigorouspeerreview.ThepurposeofChinaHealthPolicyNotesistosharethesefindingswithabroaderaudience,especiallytoChinesepolicymakers,healthspecialists,andscholars.HardcopyversionsofthesepaperscanbeobtainedinEnglishandChinesebywritingtotheWorldBank.Theycanbedownloadedwithoutchargeat(jlangenbrunner@worldbank.org).TheBankwarmlythanksourmanycolleaguesandcounterpartsinChina,especiallyintheMinistryofHealth,theNationalDevelopmentReformCommission,theMinistryofHumanResourcesandSocialSecurity,theMinistryofFinance,andtheMinistryofCivilAffairs.WealsoextendgratefulappreciationtotheUKDepartmentforInternationalDevelopment(DfID),whichprovidedgrantsupportforAAAworkendingSpring2008.CHINAHEALTHPOLICYNOTES,N0.1THEWORLDBANKHealth,Population,andNutritionEastAsiaandPacificRegionFinancing,Pricing,andUtilizationofPharmaceuticalsinChina:TheRoadtoReformJune2010TableofContentsAcronyms,abbreviations,currency...............................................................................................iiiExecutiveSummary............................................................................................................................v1.Introduction....................................................................................................................................12.TheChinesePharmaceuticalMarket.....................................................................................3Backgroundandoverview..............................................................................................................3SizeandcompositionofChina’spharmaceuticalsector...........................................................4Domesticexpendituresondrugs..................................................................................................83.EssentialMedicines......................................................................................................................11Theoriginsoftoday’spolicies.....................................................................................................11Availabilityandutilizationofessentialmedicines....................................................................13Essentialmedicinesinthehealthreformprocess,2008-10...................................................154.ManagingtheCostsofPharmaceuticals...............................................................................19Governmentpricesetting............................................................................................................19Impactofgovernmentpricesetting,1996-200...........................................................................22Roomforpricereductions.............................................................................................................23Alternativeapproachestocostreduction,2006–10...............................................................24Therelatedproblemofirrationaldruguse...............................................................................335.RefiningthePathtoHealthcareandPharmaceuticalReform.......................................37Accomplishmentsduringthe2000s............................................................................................37Lookingahead:Pharmaceuticalreforminthecomingdecade..............................................39References.................................................